Nasdaq OMX Group Inc. (NDAQ) took two financial steps last week that included the repurchase of stock worth $497 million from Borse Dubai Ltd, and to raise funds for the repurchase, the company issued fixed interest senior notes worth $370 million, in the bond market. Borse Dubai is the state-owned company that operates Dubai's exchanges.

In March 2010, the board of Nasdaq approved a share repurchase program, authorizing Nasdaq to repurchase $300 million of its outstanding common stock. Further, during the second quarter of 2010, the board of Nasdaq authorized an additional $100 million for the program, bringing the total authorized amount to $400 million. The company also completed $300 million of this share repurchase program through the buyback of 15.1 million shares at the end of the third quarter.

The share repurchase is being made by Nasdaq since Borse Dubai intends to dilute its stake in Nasdaq in order to partly fund its $2.45 billion debt obligations, due in February 2011, from the proceeds. Hence, while Nasdaq is buying back 22.278 million shares, Borse Dubai has also offered Nomura International plc, a Japanese investment bank, another 8 million Nasdaq shares, in a private offering, thereby vending off about 30.78 million Nasdaq shares.

Nasdaq's notes carry a rating of “Baa3” and “BBB” from Moody's Investor Service of Moody's Corp. (MCO) and Standards & Poor's (S&P), respectively. However, the S&P has downgraded its rating outlook to negative from stable, given the company's aggressively risky buyback policies that could threaten the balance sheet's stability. The offering is expected to close on December 21, subject to customary closing conditions.

Previously, in January this year, Nasdaq had announced the public offering of senior notes worth $1 billion, which were issued in two tranches comprising $400 million aggregate principal amount of 4.00% senior notes, due in 2015 and $600 million aggregate principal amount of 5.55% senior notes, due in 2020. The proceeds of these notes were used for repaying outstanding debts under Nasdaq's credit facilities.

Overall, the idea of repurchasing shares by raising debt gives way to ample concerns over the financials of the company, since organizations execute buyback activity with their surplus cash flows. Moreover, the current high rate of interest associated with the new loan may weigh on the company's bottom line in the upcoming quarters. However, buying back shares from an institution at a discounted price has helped reduce the share count, thereby virtually increasing the earnings per share.